Sunday, November 30, 2014

Marin Katusa: “Russia Back to Superpower Status”

By Marin Katusa, Chief Energy Investment Strategist


Russian President Vladimir Putin has re-established his country as a global superpower. "Not only that, he's got the other emerging markets working in concert against U.S. interests, globally," said Marin Katusa, author of The Colder War, during an interview on the "Steve Malzberg Show" on Newsmax TV. On top of that, Marin added, "Western Europe's become more addicted to Russian sources of oil and natural gas."

Click here to get your copy of Marin's new book and discover how the struggle between Russia and the West to control the world's energy trade will directly affect you and the future of global finance.

Thursday, November 27, 2014

“Paper Gold” and Its Effect on the Gold Price

By Bud Conrad, Chief Economist


Gold dropped to new lows of $1,130 per ounce last week. This is surprising because it doesn’t square with the fundamentals. China and India continue to exert strong demand on gold, and interest in bullion coins remains high.

I explained in my October article in The Casey Report that the Comex futures market structure allows a few big banks to supply gold to keep its price contained. I call the gold futures market the “paper gold” market because very little gold actually changes hands. $360 billion of paper gold is traded per month, but only $279 million of physical gold is delivered. That’s a 1,000-to-1 ratio:

Market Statistics for the 100-oz Gold Futures Contract on Comex
Value ($M)
Monthly volume (Paper Trade) $360,000
Open Interest All Contracts $45,600
Warehouse-Registered Gold (oz) $1,140
Physical Delivery per Month $279
House Account Net Delivery, monthly $41

We know that huge orders for paper gold can move the price by $20 in a second. These orders often exceed the CME stated limit of 6,000 contracts. Here’s a close view from October 31, when the sale of 2,365 contracts caused the gold price to plummet and forced the exchange to close for 20 seconds:


Many argue that the net long-term effect of such orders is neutral, because every position taken must be removed before expiration. But that’s actually not true. The big players can hold hundreds of contracts into expiration and deliver the gold instead of unwinding the trade. Net, big banks can drive down the price by delivering relatively small amounts of gold.

A few large banks dominate the delivery process. I grouped the seven biggest players below to show that all the other sources are very small. Those seven banks have the opportunity to manage the gold price:

After gold’s big drop in October, I analyzed the October delivery numbers. The concentration was even more severe than I expected:

This chart shows that an amazing 98.5% of the gold delivered to the Comex in October came from just three banks: Barclays; Bank of Nova Scotia; and HSBC. They delivered this gold from their in-house trading accounts.

The concentration was even worse on the other side of the trade—the side taking delivery. Barclays took 98% of all deliveries for customers. It could be all one customer, but it’s more likely that several customers used Barclays to clear their trades. Either way, notice that Barclays delivered 455 of those contracts from its house account to its own customers.

The opportunity for distorting the price of gold in an environment with so few players is obvious. Barclays knows 98% of the buyers and is supplying 35% of the gold. That’s highly concentrated, to say the least. And the amounts of gold we’re talking about are small—a bank could tip the supply by 10% by adding just 100 contracts. That amounts to only 10,000 ounces, which is worth a little over $11 million—a rounding error to any of these banks. These numbers are trivial.
Note that the big banks were delivering gold from their house accounts, meaning they were selling their own gold outright. In other words, they were not acting neutrally. These banks accounted for all but 19 of the contracts sold. That’s a position of complete dominance. Actually, it’s beyond dominance. These banks are the market.

My point is that this market is much too easily rigged , and that the warnings about manipulation are valid. At some point, too many customers will demand physical delivery and there will be a big crash. Long contracts will be liquidated with cash payouts because there won’t be enough gold to deliver. I saw a few squeezes in my 20 years trading futures, including gold. In my opinion, the futures market is not safe.

The tougher question is: for how long will big banks’ dominance continue to pressure gold down? Unfortunately, I don’t know the answer. Vigilant regulators would help, but “futures market regulators” is almost an oxymoron. The actions of the CFTC and the Comex, not to mention how MF Global was handled, suggest that there has been little pressure on regulators to fix this obvious problem.

This quote from a recent Financial Times article does give some reason for optimism, however:
UBS is expected to strike a settlement over alleged trader misbehaviour at its precious metals desks with at least one authority as part of a group deal over forex with multiple regulators this week, two people close to the situation said. … The head of UBS’s gold desk in Zurich, André Flotron, has been on leave since January for reasons unspecified by the lender….
The FCA fined Barclays £26m in May after an options trader was found to have manipulated the London gold fix.

Germany’s financial regulator BaFin has launched a formal investigation into the gold market and is probing Deutsche Bank, one of the former members of a tarnished gold fix panel that will soon be replaced by an electronic fixing.

The latter two banks are involved with the Comex.

Eventually, the physical gold market could overwhelm the smaller but more closely watched US futures delivery market. Traders are already moving to other markets like Shanghai, which could accelerate that process. You might recall that I wrote about JP Morgan (JPM) exiting the commodities business, which I thought might help bring some normalcy back to the gold futures markets. Unfortunately, other banks moved right in to pick up JPM’s slack.

Banks can’t suppress gold forever. They need physical gold bullion to continue the scheme, and there’s just not as much gold around as there used to be. Some big sources, like the Fed’s stash and the London Bullion Market, are not available. The GLD inventory is declining.


If a big player like a central bank started to use the Comex to expand its gold holdings, it could overwhelm the Comex’s relatively small inventories. Warehouse stocks registered for delivery on the Comex exchange have declined to only 870,000 ounces (8,700 contracts). Almost that much can be demanded in one month: 6,281 contracts were delivered in August.

The big banks aren’t stupid. They will see these problems coming and can probably induce some holders to add to the supplies, so I’m not predicting a crisis from too many speculators taking delivery. But a short squeeze could definitely lead to huge price spikes. It could even lead to a collapse in the confidence in the futures system, which would drive gold much higher.
Signs of high physical demand from China, India, and small investors buying coins from the mint indicate that gold prices should be rising. The GOFO rate (London Gold Forward Offered rate) went negative, indicating tightness in the gold market. Concerns about China’s central bank wanting to de-dollarize its holdings should be adding to the interest in gold.

In other words, it doesn’t add up. I fully expect currency debasement to drive gold higher, and I continue to own gold. I’m very confident that the fundamentals will drive gold much higher in the long term. But for now, I don’t know when big banks will lose their ability to manage the futures market.

Oddities in the gold market have been alleged by many for quite some time, but few know where to start looking, and even fewer have the patience to dig out the meaningful bits from the mountain of market data available. Casey Research Chief Economist Bud Conrad is one of those few—and he turns his keen eye to every sector in order to find the smart way to play it. This is the kind of analysis that’s especially important in this period of uncertainty and volatility… and you can put Bud’s expertise—along with the other skilled analysts’ talents—to work for you by taking a risk-free test-drive of The Casey Report right now.

The article “Paper Gold” and Its Effect on the Gold Price was originally published at caseyresearch.com.

Monday, November 24, 2014

Outside the Box: The Return of the Dollar

By John Mauldin



Two years ago, my friend Mohamed El-Erian and I were on the stage at my Strategic Investment Conference. Naturally we were discussing currencies in the global economy, and I asked him about currency wars. He smiled and said to me, “John, we don’t talk about currency wars in polite circles. More like currency disagreements” (or some word to that effect).

This week I note that he actually uses the words currency war in an essay he wrote for Project Syndicate:

Yet the benefits of the dollar’s rally are far from guaranteed, for both economic and financial reasons. While the US economy is more resilient and agile than its developed counterparts, it is not yet robust enough to be able to adjust smoothly to a significant shift in external demand to other countries. There is also the risk that, given the role of the ECB and the Bank of Japan in shaping their currencies’ performance, such a shift could be characterized as a “currency war” in the US Congress, prompting a retaliatory policy response.

This is a short treatise, but as usual with Mohamed’s writing, it’s very thought-provoking. Definitely Outside the Box material.

And for a two-part Outside the Box I want to take the unusual step of including an op-ed piece that you might not have seen, from the Wall Street Journal, called “How to Distort Income Inequality,” by Phil Gramm and Michael Solon. They cite research I’ve seen elsewhere which shows that the work by Thomas Piketty cherry-picks data and ignores total income and especially how taxes distort the data. That is not to say that income inequality does not exist and that we should not be cognizant and concerned, but we need to plan policy based on a firm grasp of reality and not overreact because of some fantasy world created by social provocateur academicians.

The calls for income redistribution from socialists and liberals based on Piketty’s work are clearly misguided and will further distort income inequality in ways that will only reduce total global productivity and growth.

I’m in New York today at an institutional fund manager conference where I had the privilege of hearing my good friend Ian Bremmer take us around the world on a geopolitical tour. Ian was refreshingly optimistic, or at least sanguine, about most of the world over the next few years. Lots of potential problems, of course, but he thinks everything should turn out fine – with the notable exception of Russia, where he is quite pessimistic. A shirtless Vladimir Putin was the scariest thing on his geopolitical radar. As he spoke, Russia was clearly putting troops and arms into eastern Ukraine. Why would you do that if you didn’t intend to go further? Ian worried openly about Russia’s extending a land bridge all the way to Crimea and potentially even to Odessa, which is the heart of economic Ukraine, along with the Kiev region. It would basically make Ukraine ungovernable.

I thought Putin’s sadly grim and memorable line that “The United States is prepared to fight Russia to the last Ukrainian” pretty much sums up the potential for a US or NATO response. Putin agreed to a cease-fire and assumed that sanctions would start to be lifted. When there was no movement on sanctions, he pretty much went back to square one. He has clearly turned his economic attention towards China.

Both Ian Bremmer and Mohamed El Erian will be at my Strategic Investment Conference next year, which will again be in San Diego in the spring, April 28-30. Save the dates in your calendar as you do not want to miss what is setting up to be a very special conference. We will get more details to you soon.

It is a very pleasant day here in New York, and I was able to avoid taxis and put in about six miles of pleasant walking. (Sadly, it is supposed to turn cold tomorrow.) I’ve gotten used to getting around in cities and slipping into the flow of things, but there was a time when I felt like the country mouse coming to the city. As I walked past St. Bart’s today I was reminded of an occasion when your humble analyst nearly got himself in serious trouble.

There is a very pleasant little outdoor restaurant at St. Bartholomew’s Episcopal Church, across the street from the side entrance of the Waldorf-Astoria. It was a fabulous day in the spring, and I was having lunch with my good friend Barry Ritholtz. The president (George W.) was in town and staying at the Waldorf. His entourage pulled up and Barry pointed and said, “Look, there’s the president.”

We were at the edge of the restaurant, so I stood up to see if I could see George. The next thing I know, Barry’s hand is on my shoulder roughly pulling me back into my seat. “Sit down!” he barked. I was rather confused – what faux pas I had committed? Barry pointed to two rather menacing, dark-suited figures who were glaring at me from inside the restaurant.

“They were getting ready to shoot you, John! They had their hands inside their coats ready to pull guns. They thought you were going to do something to the president!”
This was New York not too long after 9/11. The memory is fresh even today. Now, I think I would know better than to stand up with the president coming out the side door across the street. But back then I was still just a country boy come to the big city.

Tomorrow night I will have dinner with Barry and Art Cashin and a few other friends at some restaurant which is supposedly famous for a mob shooting back in the day. Art will have stories, I am sure.

It is time to go sing for my supper, and I will try not to keep the guests from enjoying what promises to be a fabulous meal from celebrity chef Cyrille Allannic. After Ian’s speech, I think I will be nothing but sweetness and light, just a harmless economic entertainer. After all, what could possibly go really wrong with the global economy, when you’re being wined and dined at the top of New York? Have a great week.

Saturday, November 22, 2014

The Looming Uranium Crisis: Strategic Implications for the Colder War

By Marin Katusa, Chief Energy Investment Strategist


In the wake of one singular event—the disaster at Fukushima in March 2011, the effects of which are still being felt today across the planet—nuclear power has seemingly fallen into utter disrepute, at least in the popular mind. But this is largely an illusion.

It’s true that Japan took all 52 of its nuclear plants offline after Fukushima and sold much of its uranium inventory. South Korea followed with shutdowns of its own. Germany permanently mothballed eight of its 17 reactors and pledged to close the rest by the end of 2022. Austria and Spain have enacted laws to cease construction on new nuclear power stations. Switzerland is phasing them out. A majority of the other European nations is also opposed.

All of this has resulted in a large decrease in demand for uranium, a glut of the fuel on the market, and a per-pound price that fell as low as $28.50 in mid-2014, down nearly 80% from its peak of $135 in 2007. Currently, it’s languishing around $39 per pound, still below the cost of production for many miners—about 80% need prices above $40 to make any return on investment, and even at that level, no new mines will be built. It’s easy to hear a death knell for nuclear energy on the breeze. And that may well be the case for Europe (except for France). But Europe is hardly the world.

South Korean plants are back online. Japan is planning to restart its reactor fleet (despite a great deal of citizen protest) beginning in 2015. Russia is heavily invested, with nine plants under construction and 14 others planned. China, faced with unhealthy levels of air pollution in many of its cities due to coal power generation, is going all in on nuclear. 26 reactors are under construction, and the government has declared a goal of quadrupling present capacity—either in operation or being built—by 2020. India has 20 plants and is adding seven more. And in the rest of the developing nations, nuclear power is exploding.

Worldwide, no fewer than 71 new plants are under construction in more than a dozen countries, with another 163 planned and 329 proposed. Many countries without nuclear power soon will build their first reactors, including Turkey, Kazakhstan, Indonesia, Vietnam, Egypt, Saudi Arabia, and several of the Gulf emirates.

For years, China, with its stunning GDP growth rate, has been seen as the leading destination for natural resources. “Produce what China needs” has been every supplier’s ongoing mantra. Yet, as many Americans fail to realize, it’s their own home that is the biggest uranium consumer. Despite having not opened a new plant since 1977 (though six additional units are scheduled to open by 2020), the US is the world’s #1 producer of nuclear energy, accounting for more than 30% of the global total. France is a distant second at 12%; China, playing catchup, sits at only 6% right now. The 65 American nuclear plants, housing just over 100 reactors, generate 20% of total US electricity.
Yet uranium is the one fuel for which there is very little domestic supply.


As you can see, the US has to import over 90% of what it uses. That’s a huge shortfall—and it’s persisted for many years. How has the country made it up?
In a word: Russia.

America’s former Cold War archenemy—and antagonist in the unfolding sequel, the Colder War—has in fact been keeping the US nuclear fires burning, through conduits like the Megatons to Megawatts Program.

When the USSR collapsed, Russia inherited over two million pounds of HEU—highly enriched uranium (the 90% U-235 needed to fashion a bomb)—and vast, underused facilities for handling and fabricating the material. Starting in 1993, it cut a deal with the US dubbed the Megatons to Megawatts Program. Over the 20 years that followed, 1.1 million pounds of Russian weapon-grade uranium, equivalent to about 20,000 nuclear warheads, was downblended to U3O8 and sold to the United States as fuel.

That source was very important in helping to fill the US supply gap for those two decades. It represented, on average, over 20 million pounds of annual uranium supply, or half of what the country consumed. I’m sure it would have come as a shock to most Americans if they’d realized that one in ten of their homes was being powered by former Soviet missiles.

Megatons to Megawatts expired in November 2013, but US dependence on Russia did not. Russia is easily able to maintain its sizeable export presence, due largely to present economics.
Because of all the uranium swamping the market since Fukushima, separative work units (SWUs) are trading at very low prices. SWUs measure the amount of separation work necessary to enrich uranium—in other words, how much work must be done to raise the product’s concentration of U-235 to the 3-5% that most reactors require for fission?

The tails that are left behind when U-235 is separated out to make warheads still contain some amount of the isotope, usually around 0.2% to 0.3%. When the price of SWUs gets low enough, it’s a condition known as “underfeeding,” meaning it’s worth the effort to go back and extract leftover U-235 from the tails. That’s done through the process of re-enrichment, the reverse of the procedure that creates HEU. It’s kind of like getting fresh gold from old ore that had already yielded the easy stuff.
After the Soviet Union broke up, Russia had a lot of enrichment capacity it no longer needed for its military program. And major uranium companies like Areva and Urenco had sent trainloads of enrichment tails to Russia in the 1990s and early 2000s.

Great stockpiles were built up, and they’ll be put to use until the pendulum swings the other way and we get “overfeeding,” where the price of SWUs makes re-enrichment too costly to continue. We will go from under- to overfeeding in the near future. Rising demand from the Japanese restart and new plants coming online ensures that it will happen, and probably within the next 24 months. The market is already anticipating it, with the per-pound price of uranium up more than 35% in the past few months. It’s going to double to $75… at the least.
Meanwhile, though, the ability to profitably produce fuel-grade uranium from tails confers on Russia a number of significant advantages. Among them:
  • It permits the country to exploit a previously worthless resource.
  • The more tails it can use as feedstock, the fewer it has to dispose of.
  • Most important, it means Russia can conserve much of its mineral supply for a future when higher prices will dramatically increase its leverage. That includes in-ground ore, of which it has a lot, and probably uranium picked up on the cheap when Japan did its massive post-Fukushima fuel dump (though it has never been officially confirmed who the buyers of Japan’s uranium supply were, I have some very connected sources who tell me it was the Russians who snapped most of it up).
This is one part of Vladimir Putin’s plan to dominate the world energy markets. In my book, The Colder War, I call it the “Putinization” of uranium.  And he has nicely positioned his country to pull it off.

In January 2014, Sergei Kiriyenko, head of Russian energy giant Rosatom, was bursting with enthusiasm when he predicted that Russia’s recent annual production rate of 6.5 million pounds of uranium would triple in 2015.

Rosatom puts Russia’s uranium reserves in the ground at 1.2 billion pounds of yellowcake, which would be the second largest in the world; the company is quite capable of mining 40 million pounds per year by 2020. Add in Russia’s foreign projects in Kazakhstan, Ukraine, Uzbekistan, and Mongolia, and annual production in 2020 jumps to more than 63 million pounds. Include all of Russia’s sphere of influence, and annual production easily could amount to more than 140 million pounds six years from now.

No other country has a uranium mining plan nearly this ambitious. By 2020, Russia itself could be producing a third of all yellowcake. With just its close ally Kazakhstan chipping in another 25%, Russia would have effective control of more than half of world supply.
That’s clout. But it doesn’t end there.

Globally, there are a fair number of facilities for fabricating fuel rods. Not so with conversion plants (uranium oxide to uranium hexafluoride) or enrichment plants (isolating the U-235). And the world leader in conversion and enrichment is… yes, Russia.

All told, Russia has one-third of all uranium conversion capacity. The United States is in second place with 18%. And Russia’s share is projected to rise, assuming Rosatom proceeds with a new conversion plant planned for 2015. Similarly, Russia owns 40% of the world’s enrichment capacity. Planned expansion of the existing facilities will push that share close to 50%.

That’s Putin’s goal—to corner the conversion and enrichment markets—because it wraps Russian hands around the chokepoints in the whole yellowcake-to-electricity progression. It’s a smart strategy, too—control those, and you control the availability and pricing of a product for which demand will be rising for decades.

And that control will tighten, because the barrier to entry for either function is very high. Building new conversion or enrichment facilities is too costly for most countries, and it is especially difficult in the West due to the influence of environmentalists.

It’s worth reiterating. Russia is on track to control 58% of global yellowcake production; currently responsible for a third of yellowcake-to-uranium-hexafluoride conversion; and soon to hold half of all global enrichment capacity. There’s a word for this: stranglehold.

That is what Putin and Russia will have on the supply chain for nuclear fuel in a world where new atomic power plants are being constructed at warp speed, which will force the price of uranium ever higher. It will give Russia enormous global influence and great leverage in all future dealings with the US.

America can mine some uranium domestically and buy some more from its Canadian ally. But even taken together, those sources put only a small patch on the supply gap.

The US government would do well to make peace with Putin, if it can, because the domestic nuclear power industry—and by extension the economic health of the country—is at the mercy of Russia, indefinitely.

To get the full story, click here to order your copy of my new book, The Colder War.
Inside, you’ll discover more on how Putin has cornered the market on Uranium, and how he’s making a big play to control the world's oil and natural gas markets. You’ll also glimpse his endgame and how it will personally affect millions of investors and the lives of nearly every American.

Thursday, November 20, 2014

The Stealth Invasion of America Continues

The last decade has seen an invasion of American soil. This invasion has raised no eyebrows and brought no call to arms. It has been systematic and by stealth. This invasion has been completely legal and happening without the knowledge of the average American. Regardless, it is very real.
Quite often in Canada, you hear the term "snowbird". This is a Canadian citizen who purchases a vacation home in the United States. Typically this is done by a wealthy citizen and is considered completely harmless. As the purchases are done at random and not concentrated in one area.
Unlike another country that has developed an appetite for American soil. The country I speak of is China, in particular, the Chinese elite, who have accumulated a vast array of US fiat dollars and are looking to escape the corruption and pollution that plagues their country.
Typically this would not be a problem, but one challenge has arisen. The location of these purchases is incredibly concentrated.
In the past, I have discussed how whole suburbs and cities have sprung up, completely dominated by Chinese citizens. Well it hasn't stopped. Michael Krieger, of Liberty Blitzkrieg reports about the latest development:
In some California communities, 90% of real estate buyers are from China. Yes, 90%. Naturally, many of them are buying multi-million dollar homes in “all cash” transactions.
Well it appears that one of those communities is the 57,000 person Los Angeles suburb known as Arcadia. The suburb had a relatively insignificant Asian population of 4% in 1980, but it is now 59%. Of course, I could care less what the ethnic mix of any particular suburb is, but what does concern me is that a lot of the recent money coming in seems to be from questionable characters. The buyers are getting access to U.S. real estate via the EB-5 visa program, and of the 10,000 of these given away this year, 85% went to the Chinese. Oh, and it’s estimated some 20% of these homes sit vacant. A great use of resources.
The accumulation of real estate from Chinese sources has exploded. It is estimated that roughly 24% of all foreign purchases comes from China, this is an increase of 72% from last year alone!
As America continues to be hollowed out, and the endless printing of fiat dollars continues, you can expect to see more and more communities such as these springing up. Communities that the average American will have little to no say in. The stealth invasion of America continues.
chinese-real-estate-buying-US

Tuesday, November 18, 2014

The Colder War is Heating Up as Putin Tightens His Grip on the Global Energy Trade

By Marin Katusa, Chief Energy Investment Strategist


Vladimir Putin is stronger than ever and judgement day for the petrodollar is here said Marin Katusa, author of the bestselling book, The Colder War, in a new interview with Bloomberg Radio.


Marin warns that America cannot achieve energy independence and that downward pressure on the price of oil will remain a near-term threat. He also reveals where he thinks the next big discoveries in oil will occur. Hint: It's not America. And gives his insights on the deals happening between Russia and China and what's in store for the future of OPEC and US oil exports.

For the full story on The Colder War and how it will directly affect you, click here to get your copy of Marin's new book.

Sunday, November 9, 2014

New Study: the Middle Class is Collapsing in the United States

Central bankers print money, and it pushes up the value of assets that the rich already own, making them even richer.

In other words, if you’re born rich, you stay rich. If you’re not, it’s becoming harder to attain wealth.

Talent and hard work matter less and less with each passing year.
This is dreadfully, terribly wrong.

The people in charge of this system have completely broken what capitalism is supposed to be. And they’ve replaced it with a new form of feudalism.

You no longer have to live, work, and play in the same country where you were born.

You no longer have to hold the heavily manipulated, degraded currency that they destroy, or use the banking system that they control.

You no longer have to educate your children in the state-controlled school system, or feed your family the genetically-modified crap that the corn lobby bribes onto the store shelves.
You can break free. It’s a matter of choice.

- Source, Silver Doctors

Thursday, November 6, 2014

US Mint SOLD OUT of Silver Eagles! 2 Million Coin Surplus Sold in Under 2 Hours!

The Mint has reportedly sold through over 2 million ounces in less than 2 hours!

It appears that the $15.50 level was the line that broke the camel’s back regarding physical inventories, as physical demand has simply EXPLODED on this morning’s futures dip below $15.20.





- Source, Silver Doctors